U.S. and India Cross Border Retirement under the Tax Treaty


There are a lot of US people who have received pension and retirement plan revenue through India but are (understandably) not sure which way it is that the United States taxes the India pension and retirement income. It is important to note that the United States and India have signed a double taxation treaty, and the tax treaty offers details on how pension or retirement benefits are taxed.

Plans for retirement and pensions Plans can be divided further into public/government pension and private pension. Social security, in addition, is a separate section within Article 18. Let’s look at ways in which social security is taxed in the U.S. taxes cross-border pension income from India:
Article 18. (1) PRIVATE PENSION

Article 18(1) is a reference to private pensions. In general private pensions, they are tax-deductible in the country where the taxpayer lives and not by the person who is the source (payor). However, article 18(1) cannot be exempted by saving under the Clause. That means that under the Saving Clause every country has the right to tax private pensions in the same way as had there been no treaty in force. Because the US tax US Persons(not only US Citizens) on their global income, the majority of private pension income from India is tax-deductible for US people unless they have made specific treaty choices or get around Substantial Presence using one of the exclusions or by proving that they have closer ties to a foreign nation on IRS Form 8840.

Article 18. (2) Social Security
Article 18 (2) is a reference specifically to Social Security, which is typically tax-exempt at source since it’s a government payment. Contrary to Private Pensions, Social Security is exempt from the Savings Clause which is why it is considered to be the “last word” regarding the taxation of social security across borders.

Article 19. (1)(b) PUBLIC PENSION
Article 19. (1) is a reference to Public Pension. In general, the case of public Pension will be taxed according to the source country and not by the one in which the resident is. However, this does not apply if the taxpayer is a resident of another country. In that case, the country of residence (residence not source) has the sole right to tax the earnings. In the same way, article 19(1) is not included in the Saving Clause, however, only for those who have certain citizenship, immigration, or residence status.

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